Yield Tokenization Explained: How PT and YT Work
What is yield tokenization?
Yield tokenization is the process of splitting a yield-bearing asset into two separate tradable tokens: a Principal Token (PT) that redeems for the principal at maturity, and a Yield Token (YT) that captures all the yield until then. This lets you lock in a fixed rate by buying the PT, or speculate on yield by buying the YT. It is the on-chain version of bond stripping.
Key takeaways
- Yield tokenization = splitting a deposit into principal and yield as two tokens.
- The PT is a zero-coupon bond; the YT is the yield stream.
- Buy the PT at a discount → lock a fixed rate. Buy the YT → bet yield rises.
- PT value + YT value always equals the underlying — the split is lossless.
- Pendle pioneered this on EVM; Spield brings it to Stellar on real Blend yield.
How does yield tokenization work, step by step?
Yield tokenization works by taking a position that earns a variable yield and minting two tokens against it: one that owns the principal and one that owns the yield. You deposit an asset, receive a PT and a YT in equal measure, and from then on the two can be held, sold, or redeemed independently.
Deposit a yield-bearing asset
You supply an asset that earns a variable yield — for Spield, USDC that gets supplied into Blend.
The position is split
The protocol mints a Principal Token (the principal claim) and a Yield Token (the yield claim) against your deposit.
Hold, trade, or redeem
Keep both to hold your original exposure, sell the YT to lock a fixed rate, or buy more YT to lever up on yield.
At maturity
The PT redeems 1:1 for the underlying; the YT has paid out all its yield and expires worthless.
Why is this the same as bond stripping?
It is the same because bond stripping in traditional finance separates a bond’s principal from its coupons and sells them as independent instruments — a stripped principal (a zero-coupon bond) and stripped coupons. Yield tokenization does exactly this on-chain: the PT is the stripped principal, the YT is the stripped yield.
How do you lock a fixed rate with yield tokenization?
You lock a fixed rate by buying a Principal Token at a discount and holding it to maturity. If you pay 0.95 USDC for a PT that redeems for 1 USDC, you have locked a fixed return of about 5.3% for that term, regardless of what the variable rate does in between. The discount is your fixed yield.
What is the point of yield tokenization?
It separates certainty from upside. Some users want a guaranteed fixed rate (they buy the Principal Token); others want leveraged exposure to yield (they buy the Yield Token). Yield tokenization lets a single position serve both, and creates a market that prices yield itself.
Is yield tokenization risky?
Principal Tokens held to maturity return principal plus the locked discount, so their main risk is smart-contract risk and pre-maturity price movement. Yield Tokens are higher risk because they can decay to zero if realized yield underperforms the implied APY.
Which protocols do yield tokenization?
Pendle pioneered yield tokenization on Ethereum and other EVM chains. Spectra offers a permissionless EVM version. Spield brings yield tokenization to Stellar, built on real Blend lending yield.